Whining bankers suggests someone’s doing something right

The so-called “fight-back” by bankers complaining proposed new regulations over bonus claw backs and jail sentences will make their industry less competitive is a sure sign the proposed changes might start to make a difference.

First, the issue of competitiveness. Suggesting a tougher regulatory regime will somehow put the UK banks at a competitive disadvantage is almost certainly wrong.

In a few years time you can expect UK bankers to be loudly boasting their particular industry is a world leader in creating greater trust and confidence amongst its previously much ignored customers.

Secondly, the suggestion UK banks will end up paying a premium to attract talent from outside the UK is self-serving nonsense. All the available evidence suggests people are attracted to work for ethical organisations and even accept lower pay if they can do so.

Not only that, retention rates of ethical organisations tend to be better than ones that have a less good ethical reputation. In purely monetary terms this means the UK banks would be able to retain their talent and therefore have lower attrition costs than less ethical rivals elsewhere..

Thirdly, the notion implied by the bankers’ fight back that money is the main thing motivating all bankers is patently wrong. It has surely has led the industry into the mess from which it is now trying to extract itself.

While pay is obviously an important consideration, most motivational research shows it’s seldom a main factor leading to career choices.

Doubts about the value of putting bankers’ bonuses at risk of claw back is yet another part of the declared resistance being employed by bankers’ or their allies. For example, the right wing think tank the Institute of Economic Affairs argues claw back won’t affect bank culture because it’s “already one of the most heavily regulated in the economy.”

This is yet another spurious assertion that should be treated with the contempt it deserves. Claw back is a powerful tool with a leading tax expert for example even suggesting “there needs to be some way to compensate a banker affected by the claw back.” [1]

Why a banker should be compensated for running the risk that bad behaviour might later catch up with him or her, is hard to understand. It will in effect help align bankers’ interests with those of other stakeholders. In other words, the present bonus ridden culture that mainly bi-passes anything to do with ethical behaviour has to be brought to an end.

Probably the main issue new regulations need to address concerns accountability. Who wants to take charge of a bank and risk being sent to jail if a minor cog far down the chain of command turns out to be a value destroyer?

Regardless of how diligent you are as a manager, no matter how many checks you install, you can never rest easy you’ve created a fail safe system in which fraud and reckless behaviour have been eliminated.

Suppose you are in charge of a company with say 100,000 employees. Even if 99.9% of them conduct themselves with exemplary behaviour and confirm to normal compliance rules, this still leaves a tiny 0.1% of employees who could be potential value destroyers. This adds up to 100 breaches of the regulations every day!

But this is precisely what risk assessment is all about. It is what banks’ themselves claim to be good at, for example when making loans. They base their decisions and charges on weighing up the pros and cons to arrive at a level of acceptable risk.

That is what being accountable has to mean. The proposed new regulatory regime, would be tough precisely because bankers would have to take risk assessment for themselves far more seriously, as opposed to doing it to others. Welcome to the real world Mr Bank executive.

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